Payments Perspectives Blog

How to Engage the Disengaged Cardholder

Banks make big investments in new customer acquisitions and in customer retention. The more valuable opportunity is in the latter, specifically among the less engaged/inactive population. That opportunity is particularly significant for highly competitive, mature, developed markets.

A recent study was conducted by MasterCard Advisors across three such markets: Singapore, the UK and the US. For a proportion of credit card customers, the study found that a shift from a “low level” of spending activity to that of “highly engaged” activity was a step-change that happened over a very short period of time. This is a counter belief to conventionally-held wisdom of a gradual shift over time.

Studying cardholder behavior, MasterCard Advisors with its access to anonymous and aggregated transactional data, recently conducted a study across several markets to understand the change in spend behavior as cardholders increase engagement. Anonymized card accounts were aggregated into one of five usage segments—Very High, High, Medium, Low, and Zero—based on the number of industries (i.e., merchant categories) in which the spending occurred.

The study illustrated that when customers migrate to a more engaged state, they tend to remain there, spending more and engaging across a broader range of merchant categories. Migrating cardholders most often stay in the “High” usage segment once they move to it transacting across a broader, more diverse range of industries. In addition, customers that migrate to these more active customer segments show increased activity in terms of average number of transactions and average purchase volume. The fact that cardholders can suddenly become highly engaged suggests that “account triggers” may instigate the change in customer behavior. The fact that shifts in customer behavior are typically sudden suggests that there may be “trigger” events influencing the cardholder (likely issuer-activated triggers)—A card issuer offering rewards points to its cardholders if they spend in certain sectors (e.g., restaurants and grocery stores) during the next statement period is an example of this. “Early-month-on-book” strategies, reactivation campaigns and category expansion campaigns are all potential sources of triggers aimed at influencing cardholder behavior.

As issuers develop their future marketing strategies, they should consider analyzing their customer needs and their portfolios to identify relevant triggers and enhance their customer engagement strategies accordingly.